Third Leighton downgrade expected, but not raising

Investors have scotched the idea that the country’s biggest civil contractor,
Leighton
Holdings, will launch a capital raising, after a trading halt during the week sparked two days of rumour and speculation.

The construction company is expected to announce its third earnings downgrade in six months on Monday as it struggles with problem contracts in Australia, and its Middle East joint venture.

Late on Friday afternoon, major shareholders had not been contacted about their willingness to participate in a capital raising.

Royal Bank of Scotland analyst Andrew Hodge said he believed a capital raising was unlikely as it would need the backing of 54 per cent stakeholder Hochtief.

“We don’t think they’ll do a capital raising because Hochtief doesn’t have the money to participate in a capital raising, which would dilute [their stake]," Mr Hodge said. “We’ve heard one or two rumours, but we’d be surprised if there was a capital raising. There’s a whole wealth of possible combinations. It could be a fully underwritten dividend reinvestment plan. We have no idea what’s going to happen."

Chris Hall, portfolio manager at shareholder Argo Investments, noted that if Leighton did intend to raise capital to repair its balance sheet, he would not expect to hear about it until a statement was released to the stock exchange.

“For a balance sheet restoration, companies rarely sound out key investors," he said. “They just have to do it. Another rumour was that Leighton might sell its stakes in mining services company
Sedgman
, engineering group
Macmahon Holdings
and property group
Devine
, whose total worth has been put at $305 million.

Analysts guessed that the write-down in Monday’s announcement could be as much as $300 million, tipping Leighton’s net debt to equity ratio up to 45 per cent.

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Earlier guidance for net profit after tax for this financial year was $480 million. The last time Leighton’s debt was so high was in 2008, when it was forced to raise $700 million to shore up its balance sheet.